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RR RUEHLMC RUEHVC
DE RUEHUM #0050/01 0300813
ZNR UUUUU ZZH
R 300813Z JAN 08
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 1857
INFO RUEHBJ/AMEMBASSY BEIJING 5961
RUEHUL/AMEMBASSY SEOUL 3149
RUEHKO/AMEMBASSY TOKYO 2848
RUEHMO/AMEMBASSY MOSCOW 2075
RUEHOT/AMEMBASSY OTTAWA 0567
RUEHML/AMEMBASSY MANILA 1609
RUEHLO/AMEMBASSY LONDON 0257
RUEHBY/AMEMBASSY CANBERRA 0227
RUEHVC/AMCONSUL VANCOUVER 0104
RUEHGV/USMISSION GENEVA 0362
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RHEHNSC/NATIONAL SECURITY COUNCIL WASHINGTON DC

UNCLAS SECTION 01 OF 04 ULAANBAATAR 000050 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EAP/CM AND EB/IFD/OIA 
STATE PASS USTR, DOC/ITA, USTDA, OPIC, AND EXIMBANK 
USAID FOR ANE FOR D. WINSTON 
 
E.O. 12958: N/A 
TAGS: ETRD PREL EAID ECON EFIN PGOV MG
SUBJECT: Mongolia Ponders Transparency Agreement with U.S. 
 
Ref A: 07 Ulaanbaatar 276 
    B: 07 Ulaanbaatar 712 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (SBU) SUMMARY: Acting on a commitment to the Mongolian Government 
at last year's US-Mongolia Trade and Investment Framework Agreement 
(TIFA) talks (reftel A), Assistant U.S. Trade Representative Timothy 
Stratford proposed negotiating a Transparency Agreement (TA) with 
the Government of Mongolia.  The GOM has so far shown profound 
reluctance to embrace the proposal, in the apparent belief that 
Mongolia does not need a TA; that USTR's offer accuses Mongolia of 
opacity in its trade dealings; and that the move is simply a tactic 
to further delay discussion on the GOM's overarching goal: a Free 
Trade Agreement (FTA) with the United States.  Post and USTR have 
argued that TAs are cornerstone agreements with trading partners and 
must be part of any deep and lasting bilateral trade relationship, 
the lack of which will limit improvements in US-Mongolia trade 
relations.  Although the Mongolians are not hopelessly opposed to 
negotiating a TA, they look to next month's TIFA talks in Washington 
for answers to their remaining questions on the TA.  Post provides 
the following information to feed into a response to Mongolia's 
ongoing attempt to link movement on a Transparency Agreement with a 
Free Trade Agreement.  END SUMMARY. 
 
¶2. (SBU) Following the March 2007 TIFA talks, USTR committed itself 
to a concrete step that would advance US-Mongolia bilateral trade 
relations without crafting a comprehensive FTA, for which USTR did 
not consider Mongolia to be ready.  In a June 26, 2007 letter to the 
Ministry of Industry and Trade (MIT), Assistant U.S. Trade 
Representative Timothy Stratford proposed that Mongolia and the U.S. 
consider negotiating a United States-Mongolia Transparency Agreement 
(UMTA).  Stratford wrote that the USG considers transparency a "core 
trade and investment issue," and that provisions on transparency are 
"cornerstones of US-negotiated free trade agreements."  He added 
that transparency is an integral part of trade agreements such as 
the WTO, which Mongolia joined in 1997.  Stratford noted that 
businesses and other stakeholders would look more favorably on a GOM 
that formally adopted transparency concepts in laws and regulations 
that affect the marketplace, and that a TA would likely inspire 
confidence among U.S. investors in Mongolia, contributing to closer 
ties between the U.S. and Mongolia.  He offered the GOM the basic 
provisions of the Korea-US Free Trade Agreement (KORUS) to provide 
GOM a sense of the kind of provisions a TA would encompass. 
 
Mongolian Concerns, USTR Responses 
---------------------------------- 
 
¶3. (SBU) From July through early November 2007, MIT/GOM maintained a 
conspicuous silence on the TA proposal, despite repeated USG 
requests for a response.  Post's contacts at MIT informally told us 
of a vague push-back by other ministries.  A mid-November 2007 DVC 
with USTR, Post and the Department of Commerce's International Trade 
Administration spurred MIT to provide a more concrete accounting of 
GOM concerns.  Following a change of government in Mongolia in 
December, the new administration revealed additional concerns. 
 
¶4. (SBU) GOM concerns can be summed up in five points, followed by 
our recommended responses: 
 
Will a TA Lead to an FTA? 
------------------------- 
 
¶5. (SBU) Mongolian Concern No. 1: Is a US-Mongolia Transparency 
Agreement (UMTA) an end unto itself, or would it lead to a Free 
Trade Agreement (FTA)?  If a UMTA is part of an incremental process 
that might lead to more bilateral trade agreements, why is it not 
part of an overall FTA agreement in the first place? 
 
-- The USG has noted that transparency is an end in and of itself, 
as well as a step in an FTA process.  The USG, WTO and other trade 
organizations clearly consider transparency in the formation and 
 
ULAANBAATA 00000050  002 OF 004 
 
 
execution of laws and regulations for international trade to be, in 
and of itself, a key priority.  USTR noted that the foreign business 
community in Mongolia had expressed concerns about transparency, and 
that the USG views transparency and a TA as an important way to 
strengthen business development. 
 
-- USTR further noted that Mongolia is not yet ready for an FTA, but 
that the conclusion of a TA would make it a more competitive 
candidate for an FTA.  And even in the absence of an FTA, a TA would 
increase Mongolia's attractiveness to U.S. investors. 
 
Why Is USTR Pushing the KORUS TA? 
--------------------------------- 
 
¶6. (SBU) Mongolia Concern No. 2: Why was the proposed UMTA -- an 
almost verbatim copy of a section of the Korean-US Free Trade 
Agreement (KORUS) -- not adapted to reflect Mongolian conditions? 
 
-- USTR explained the KORUS FTA was being submitted as a reference 
point, and an example of the sort of TA that the USG had in mind for 
Mongolia.  It was not a formal offer of a proposed UMTA.  The KORUS 
TA provides ideas for the basic principles inherent in any TA 
agreement.  The USG's general expectation is that an UMTA would 
resemble the Korean TA, in terms of the principles of transparency. 
The USG recognizes that some provisions might not be easy for 
Mongolia to implement immediately; if that is the case, the US is 
willing to work with the GOM to offer support and flexible 
benchmarks/timetables for legal and regulatory changes, as well as 
for the execution of any TA.  However, the core substance of the TA 
-- administrative procedures, and public outreach on drafting 
measures for laws and regulations -- matter to us, and need to be a 
part of any TA entered into between the two countries. 
 
Does the USG Believe Mongolia Lacks Transparency? 
--------------------------------------------- ---- 
 
¶7. (SBU) Concern No. 3: Mongolian law and regulation already provide 
for transparency, and the GOM is working to address the system's 
weaknesses.  So why does Mongolia need a formal agreement?  Were 
there any specific complaints from investors regarding a lack of 
transparency? 
 
-- The USG recognizes that Mongolia is taking steps to promote 
transparency, and that a letter of agreement on a TA makes the 
US-Mongolia trade and economic relationship closer.  USTR noted that 
signing a TA would raise confidence in moving toward an FTA. 
 
-- Post made clear that it had informally received a variety of 
transparency-related complaints and concerns from private companies. 
 Post observed that in general, transparency is not a concept 
applied only certain laws and regulations; rather, that any laws and 
regulations affecting the conduct of business in Mongolia need to be 
transparent.  The reality is that there remains much doubt over how, 
and at what point, the GOM shares information with the public. 
Moreover, there are gaps in process, not only in business issues but 
in terms of budgetary plans, elections, uranium policy, and 
amendments to the mining law. 
 
What About Mongolia's Reputation? 
--------------------------------- 
 
¶8. (SBU) Mongolian Concern No. 4: Would adopting a TA suggest that 
Mongolia is less than transparent?  And would such a suggestion not 
damage Mongolia's reputation among investors?  Isn't the UMTA 
proposal really a slap at Mongolia's good-faith efforts to promote 
transparency?  We've come a long way in these past 17 years. 
 
-- Far from being a criticism, let alone an insult, a UMTA would 
send a positive signal to observers and investors.  If Mongolia were 
an unimportant trading partner, the USG would not even have 
contemplated such an agreement.  A UMTA would let everyone know that 
Mongolia could be (and already is, in some respects) functioning 
 
ULAANBAATA 00000050  003 OF 004 
 
 
transparently at a high level. 
 
Is All This Really Necessary? 
----------------------------- 
 
¶9. (SBU) Mongolian Concern No. 5: Exactly how important is a UMTA to 
US-Mongolia bilateral trade relations? 
 
-- Based on USTR guidance and positions mentioned by the Ambassador 
during his meeting with Industry and Trade  Minister Narankhuu 
(reftel B), Commoff made clear that a UMTA is crucial for enhancing 
bilateral trade relations, and that not doing so would be seen by 
the USG as signal that Mongolia does not want to face the hard work 
required to deepen the relationship.  The GOM needs to realize that 
the USG sees transparency as a core, non-negotiable issue in 
commercial and trade relations.  It matters to us and must be part 
of our relationship.  By choosing to negotiate a TA, Mongolia would 
demonstrate that it is serious about its trade agenda. 
 
¶10. (SBU) (Note: Privately, some Mongolian counterparts have doubted 
USG intentions, asserting that the USG was foisting UMTA on Mongolia 
as an FTA-delaying tactic.  These questions were recently put to 
Commoff by Minister Narankhuu's recently appointed personal advisor. 
 Such advisors often reflect a given minister's unspoken concerns. 
End Note.) 
 
So What's in it for Us? 
------------------------------ 
 
¶11. (SBU) Further conversations between Post and MIT have led us to 
conclude that the GOM is ambivalent about a UMTA but not completely 
opposed to concluding such an agreement, provided that some GOM 
concerns could be assuaged.  Part of the problem is that the GOM 
remains unsure of what a UMTA would require of them, and whether 
they would receive help to implement its provisions.  (These are 
important issues for the under-resourced GOM.)  The personal advisor 
to the MIT Minister informed us that the GOM's primary concern is 
that the USG acknowledge that a UMTA should provide significant 
momentum toward an FTA for Mongolia. 
 
¶12. (SBU) On the plus side, Mongolia's new Prime Minister S. Bayar 
recently told the Ambassador he considers the UMTA a reasonable 
proposal that is worth consideration.  Bayar is not given to 
gratuitous, feel-good statements; we are encouraged by his positive 
impression of UMTA. 
 
General Conclusions for TIFA #4 
-------------------------------- 
 
¶13. (SBU) The GOM would clearly prefer to move directly to FTA 
negotiations.  Repeated USG explanation of why Mongolia is still 
unprepared for such a move has not yet gained much traction.  To 
date, there has been no firm commitment by the GOM on a UMTA, but 
MIT Minister Narankhuu's personal advisor says the GOM seeks a USG 
commitment, or confirmation, that a UMTA would lead to an FTA, or 
some reasonable facsimile thereof.  As the advisor put it bluntly: 
"What does a TA lead to?  What sort of FTA mileage does UMTA get for 
Mongolia?" 
 
¶14. (SBU) The GOM does not appear to fully understand what TAs are 
all about, and what they require of signatories.  The USTR may need 
to address TA requirements during TIFA #4 in practical but general 
terms, as Mongolia's capacity and will to implement a TA are not yet 
fully understood yet. 
 
¶15. (SBU) The GOM remains prickly about the negative implications of 
a UMTA.  The GOM argues that it would be insulting for the U.S. to 
sit in judgment of Mongolia's transparency, or lack thereof, and 
that pursing a UMTA is an inherent criticism of Mongolia.  We have 
repeatedly pointed out the holes in these perceptions, noting that a 
UMTA, in and of itself, would acknowledge Mongolia's capacity and 
will to negotiate and implement this challenging but essential 
 
ULAANBAATA 00000050  004 OF 004 
 
 
agreement.  The USG would not have presented the GOM with a proposal 
that Mongolia could not have acted upon.  This is not criticism, but 
praise. 
 
¶16. (SBU) If the Mongolians ask how important a UMTA is to our 
bilateral trade relationship, USTR may want to state, as the Embassy 
has in one-on-one meetings, that UMTA is an essential next step in 
our bilateral relationship, and that inaction on this front would 
put the relationship on hold.  If the Mongolians signal a 
willingness to begin UMTA negotiations, we will need to make clear 
that the resulting agreement is not a superficial or perfunctory 
deal, but a serious and important undertaking, and one that must be 
implemented assiduously.  The Mongolians must understand that there 
would be a price to pay for promising to engage but then failing to 
do so. 
 
Minton